Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 6 - Commitments and Contingencies

Commitments

During the third quarter of 2013, the Company entered into various marketing agreements whereby the Company is subject to certain gathering, transportation, and processing through-put commitments for up to 10 years pursuant to each contract. The Company may be required to make periodic deficiency payments for any shortfalls in delivering the minimum applicable annual, semi-annual, or monthly volume commitments. In the event that no product is delivered in accordance with these agreements, the aggregate deficiency payments total approximately $265.8 million as of September 30, 2013.

During the third quarter of 2013, the Company entered into an office lease with an initial term of 12 years and minimum lease payments of $12.9 million over the term beginning on the commencement date, which is anticipated to be in the first quarter of 2014.

Contingencies

The Company is subject to litigation and claims arising in the ordinary course of business. The Company accrues for such items when a liability is probable and the amount can be reasonably estimated. In the opinion of management, the results of such pending litigation and claims will not have a material effect on the results of operations, the financial position, or the cash flows of the Company.

On January 27, 2011, Chieftain Royalty Company (“Chieftain”) filed a Class Action Petition against the Company in the District Court of Beaver County, Oklahoma, claiming damages related to royalty valuation on all of the Company’s Oklahoma wells. These claims include breach of contract, breach of fiduciary duty, fraud, unjust enrichment, tortious breach of contract, conspiracy, and conversion, based generally on asserted improper deduction of post-production costs. The Company removed this lawsuit to the United States District Court for the Western District of Oklahoma on February 22, 2011. The Company has responded to the petition and denied the allegations. The district court did not rule on Chieftain’s motion to certify the putative class, and stayed all proceedings until the United States Court of Appeals for the Tenth Circuit issued its rulings on class certification in two similar royalty class action lawsuits. On July 9, 2013, the Tenth Circuit issued its opinions, reversing the trial courts’ grant of class certification and remanding the matters to the trial courts for those cases. The district court presiding over the Company's case subsequently lifted its stay, and the Company expects Chieftain to file a new motion for class certification in the first half of 2015.

This case involves complex legal issues and uncertainties; a potentially large class of plaintiffs, and a large number of related producing properties, lease agreements and wells; and an alleged class period commencing in 1988 and spanning the entire producing life of the wells. Because the proceedings are in the early stages, with substantive discovery yet to be conducted, the Company is unable to estimate what impact, if any, the action will have on its financial condition, results of operations or cash flows. The Company is still evaluating the claims, but believes that it has properly paid royalties under Oklahoma law and has and will continue to vigorously defend this case.

In an unrelated matter, as of and for the nine months ended September 30, 2013, other operating expenses and accounts payable and accrued expenses included $17.8 million related to ongoing discussions to clarify the royalty payment provisions of various leases on certain South Texas & Gulf Coast acreage, of which $3.6 million of this amount was recorded during the three months ended September 30, 2013.